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Suppose that there are two independent economic factors,F1andF2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of
- Suppose that there are two independent economic factors,F1andF2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 45%. PortfoliosAandBare both well-diversified with the following properties:
| Portfolio | Beta onF1 | Beta onF2 | Expected Return |
| A | 1.5 | 2.0 | 31% |
| B | 2.2 | 0.2 | 27% |
What is the expected return-beta SML equilibrium relationship in this economy?
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Business Statistics For Contemporary Decision Making
Authors: Ken Black
9th edition
978-1-119-3208, 9781119334781, 1119334780, 1119320895, 978-1119320890
